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You shouldn't be using CITE instead of a P element. CITE isn't a block element; it's an inline element. If you put two of your "cite paragraphs" in a row, they wouldn't be displayed as separate paragraphs.
This is probably the problem - the text-indent property has no effect on inline elements.
You almost certainly shouldn't be using CITE for an entire paragraph. Basically, it's meant for italicizing the titles of books etc. Possibly you want BLOCKQUOTE instead. If you can't be bothered with working out the semantics, just use DIV, as a generic block element. Either of those should fix your problem.
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